Ethics Opinions

RPC 9

Opinion states that house counsel for a mortgage
bank may not represent other lenders and borrowers while serving as house
counsel.

Inquiry:

X Corp. is a mortgage bank whose primary business is the
origination of first mortgage loans. X Corp. receives an origination fee and
has no proprietary interest in the note and deed of trust. X Corp. desires to
employ Attorney A to represent the actual lender/investors who do not have
proprietary interests in the transactions, with the know-ledge and consent of
said lenders/investors. Attorney A would also perform in-house legal services
unrelated to such transactions on behalf of X Corp. as house counsel for X
Corp.

May Attorney A ethically represent the borrowers in closing loans
originated by X Corp. as well as representing the lender/investors who have
proprietary interests? May the borrowers be charged a fee? It is understood
that Attorney A may not represent any of the parties regarding any dispute
arising out of the contemplated closing transactions and that Attorney A's
representation would be limited to legal services performed in closing the
loans.

In the alternative, may Attorney A ethically share space with X if
A maintains independence and assures client confidentiality? May Attorney A
receive a retainer from X in such a situation?

Opinion:

If Attorney A is employed as house counsel for X Corp., which
merely originates the mortgage loans and does not have any propriety interests
of its own, Attorney A may not ethically be employed as house counsel for X
Corp. and, in that capacity, represent either the lenders or the borrowers in
closing loans originated by X Corp. Where Attorney A is paid as and acts as
house counsel for a corporation which has no proprietary interest in the
transaction, his representation of the lenders, investors, or borrowers in that
capacity may constitute the unauthorized practice of law by the corporation
which employs him. Attorney A would be acting in violation of Rule 3.1 (a) in
aiding a person, in this case X Corp., in the unauthorized practice of law.
Additionally, for the lenders, the investors, or borrowers to pay a fee to X
Corp. for this service performed by Attorney A would constitute the division of
legal fees by Attorney A with a nonlawyer, specifically X Corp., in violation
of Rule 3.2.

If Attorney A maintains his independence and simply represents
lenders, investors, and/or borrowers in response to referrals from X Corp., he
may do so ethically provided that full disclosure is made as to any regular
relationship between Attorney A and X Corp. Under these circumstances, Attorney
A may receive a retainer from X Corp. for legal ser-vices performed by Attorney
A on behalf of X Corp. Attorney A may do so even though he shares office space
with X Corp. if he does in fact maintain his practice independently and if, as
previously indicated, all clients referred by X Corp. consent to the
representation after full disclosure of any relationship between Attorney A and
X Corp.

It is noted that in no event may a lender require a borrower to
employ a particular attorney. CPRs 108 and 240.